Coverage At What Cost?

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When shopping for insurance, you want the best deal on your farm, stable and ranch policies. You want to protect your dwellings and their contents, and personal property such as machinery, animals, tack, and equipment, from loss. And you want to protect yourself and employees against liability. The big question is, can you do all this without breaking the bank?

First, consider the essentials. Most stable-related policies “include personal and farm liability,” says Linda Liestman, president of Ark Agency Animal Insurance Services. Often, stables add a commercial liability policy for horse-related activities. Liestman’s list of 125 such activities includes boarding, breeding, training, lessons, camps, pony rides, horse rentals and horse-drawn vehicle rides.

One way to make sure you’re not paying more than necessary: “Ask a company or agent for a breakdown of costs on the various activities requiring insurance,” Liestman says. “Then evaluate insurance costs versus income and future potential. Perhaps cut out an exposure or activity and save premium dollars.” Perhaps it’s time to re-evaluate what you really want to do in the horse business.

Get Full Credit

Credits are another way to cut insurance costs. “We don’t have ‘discounts’ per se,” says Scott A. Newbury, VP Marketing at Travelers Agribusiness, about the insurance business. However, he adds, “We provide a number of different credits for well-maintained and -managed operations.”

Credits—reduced premiums—are allowed by most property and casualty insurance programs. Programs vary from state to state, but most insurers in most states allow credits for a safe operating history, such as a clean safety record and a favorable loss ratio over the previous three-year period. Safety features such as fire protection devices—sprinklers and alarms, etc.—may qualify for a credit, as may certification of professionals, continuing education and long-term industry experience. Be sure to ask your insurance agent about these.

Insurance rates vary between states, and between insurers. State laws affect rates and credits in most instances, and minimum premiums may apply that don’t allow for crediting. However, press for whatever credits you have earned. A quotation will usually provide a 10% to 25% credit depending upon the premium amount and the factors described above. Ask an agent how credits may reduce your premium, Liestman advises, and whether they’re being applied to your policy.

Deductibles may reduce premiums, as can insurance limits that set the maximum amount of a judgment payable under the contract. Be sure you understand the risks and benefits—your decision must balance your ability to pay the premium against the likelihood of a claim. Would the higher premium squeeze your operation? Are you comfortable that you won’t need to pay the deductible, or that you can afford to do so if necessary? Would an upper limit on a potential claim make it harder to sleep at night? These are some of the tradeoffs to consider.

Having a clean risk profile, and therefore qualifying for credits, reinforces the importance of running a shipshape operation. You can earn credits for having an exceptionally new or very well-maintained facility and trails; the type, design and condition of your fences; new or recently remodeled buildings; up-to-date wiring; tack room neatness; maintaining tack, equipment and horses in excellent condition; and for instituting a risk-reduction procedures manual with a strict safety program.

Livestock mortality credits are slightly more challenging to obtain, Liestman says. “Usually when insuring four horses or less, there is little that can be done to reduce the premium without reducing values or coverage,” she notes.

Choosing an Insurer

In general, coverage is only as good as the company backing it. For the fewest problems, buy from a U.S.-domiciled insurance company with solid experience in horse, farm-related and recreational claims. The lowest price offered may not be the best policy to buy; make sure you are getting the coverage you need.

When shopping, remember:

• Rates vary from state to state.

• Minimum premiums apply.

• No two insurers rate a risk the same.

Farm insurance comes with a number of variables, and each company—as well as each agent—views them differently. “Every company has different rates, and may apply more crediting in states that have better litigation climates,” Liestman says. It’s unlike car insurance, which comes with fewer variables.

For example, a baseline insurance premium for a moderately-sized, diversified horse operation with boarding, breeding, training and lessons in a Midwestern state, at a $500,000 liability limit, might be $2,500. “If the insured qualifies for all available credits on the account, they could get up to a 25% credit on their premium. That would reduce the cost by as much as $625,” she points out.

All U.S. insurance agents and brokers, a.k.a. insurance producers, must be appropriately licensed at all times to sell insurance. But that doesn’t mean they are qualified to sell all types of insurance. Plus, they must be licensed to sell insurance in every state in which they solicit or sell a policy. An agent licensed only in Illinois, for instance, can not legally quote and sell a property and casualty policy in Georgia. In contrast, Liestman’s agency functions in 50 states; that requires bi-annual or annual renewal of approximately 120 licenses.

How Much Is Enough?

Ah, here’s the rub. How much insurance protection does a stable need? Newbury always encourages comprehensive coverage while carefully balancing the perennial risk-reward scenario. But that’s still a very loose guideline.

If you’re not sure what you need, then it’s time to consult a professional independent agent, he says. “Make sure you choose coverages that provide the protection you need for your way of life,” he adds. That’s a key point. Are you willing to risk compromising your future if a disaster should happen? You’ll likely determine it’s just not worth it, and take precautions to prevent trouble and purchase some level of insurance coverage in case bad things happen.

Newbury notes two worrisome trends. First, some people are reducing their level of coverage because of current economic conditions, he says. Second, claims are being submitted due to problems caused by deferred maintenance: substandard fencing, barns not being properly maintained, preventable fires and roof failures. “It is very important to have the proper coverage when events occur,” he says.

Some owners of older barns are also removing those structures from their insurance policies. “If something happens, they either pay for it out-of-pocket or simply live without the barn,” Newbury says.

The Catch-22 of insurance is that spending less on coverage raises your personal risk. “People who reduce levels of coverage want to spend less on premiums, thus they’re increasing their own exposure,” explains Newbury. For example, when someone with a $2,000 deductible increases that amount to $5,000, they pay lower premiums, since they have assumed added risk. But they will also incur higher out-of-pocket expenses should a loss occur.

Newbury tends “to encourage folks to first look to other areas of their business for savings rather than reducing the quality of the insurance product they purchase—thus increasing their own personal exposure.” Of course, looking for savings elsewhere in the business, especially the aspects that bring in revenue, might seem riskier than cutting corners on insurance. Ultimately, the choice is up to the facility owner.

One thing you should not expect from an insurance agent is a recommendation for less than complete coverage. “We, as advisers, can’t really suggest that, even in a generic fashion, without explaining the risks associated with the decision,” says Newbury.

In the end, purchasing insurance requires that you ask detailed questions, read the fine print, and carefully balance risks and benefits to ensure you’re adequately protected. Credits, and prudent management procedures, can shrink your costs and reduce your risks. But accidents can happen at even the best-run operations. Make sure you are protected when they do.